Why There Should Be A Bitcoin Central Bank

[Cortex7]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

First paragraph from wiki:

Fractional-reserve banking is the practice whereby a bank holds reserves (to satisfy demands for withdrawals) that are less than the amount of its customers' deposits. Reserves are held at the bank as currency, or as deposits in the bank's accounts at the central bank. Because bank deposits are usually considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money originally created by the central bank.[1][2]

[R2D221]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

Yes it is.

FRB creates new money out of thin air every time a new loan is created.

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

The term "run on the bank" means everyone goes to redeem the certificates at once. That would be a problem because 90% of those certificates are just printed bullshit.

The fraudulent activity is said to be "needed" as a way to control inflation/deflation, but that excuse is a crock of shit, it's only needed to financially rape the citizens.

Yes, but your definition does not match your previous scenario. You can give FRB money without printing a single cent: you just say you have all people's money and have everybody believe you. This can be done with Bitcoin in theory, but I hope we don't fall there.

[Cortex7]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

Yes it is.

FRB creates new money out of thin air every time a new loan is created.

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

The term "run on the bank" means everyone goes to redeem the certificates at once. That would be a problem because 90% of those certificates are just printed bullshit.

The fraudulent activity is said to be "needed" as a way to control inflation/deflation, but that excuse is a crock of shit, it's only needed to financially rape the citizens.

Yes, but your definition does not match your previous scenario. You can give FRB money without printing a single cent: you just say you have all people's money and have everybody believe you. This can be done with Bitcoin in theory, but I hope we don't fall there.

What do you mean? I never said anything about FRB allowing issuance without asset reserves?

I've known exactly what FRB is for over 20 years now. Seems many here are just learning now, or not.

[Lauda]

How about this answer: discussing this is stupid, and the idea is wrong on so many levels.
The whole financial system is fucked up, end of story.

[Cortex7]

How about this answer: discussing this is stupid, and the idea is wrong on so many levels.
The whole financial system is fucked up, end of story.

It's best we all understand WHY it's fucked up, otherwise you're just having "faith" that it's fucked up.

If everyone understands WHY it's fucked up then it will be good for bitcoin adoption and bad for any thief that aspires to start a bitcoin FRB.

Knowledge is power, OBTAIN IT!

FRB is an easy concept to understand:

So you want to start a bitcoin FRB?

Get yourself 100 bitcoins.

Start up your FRB with a reserve ratio of 1:1....

1:1 token:bitcoin ratio

in 1:1 mode of operation you are just a central bank.
Put bitcoins in a cold wallet with public address.
Create 100 altcoin tokens that represent the deposited bitcoins.
Users can swap (redeem) these tokens for bitcoin at any time.
Bank can loan 1 token out to someone for a year and collect say 10% interest on the loan.
You can share this interest with your depositors, (give them 8%, you keep 2%).
And so your central bank will grow.
Cold wallet will grow as people deposit their bitcoins and gain guaranteed 8% interest returns.
Let this run for a year or so, treat your depositors like gods, LET IT GROW!

IT'S ALL GOOD


> 1:1 token:bitcoin ratio

Having established your bank you can now increase the token:bitcoin ratio.
To do this you simply create new tokens out of thin air any time someone takes a loan.
Users can still swap (redeem) these tokens for bitcoin at any time.
But most users keep their bitcoins in the bank because they like the 8% per year interest.
You will need more borrowers to keep the growth.
You will have to reduce loan interest rates to encourage poeple to borrow instead of save.
You increase your token:bitcoin ratio as you grow.

You better hope all users don't want to withdraw at once or you're screwed (well they are).
If you feel it's about to collapse then you can just take the cold wallet and run...

ITS FUCKED UP  



So any central bank will start with 1:1 ratio, then after it becomes trusted it will take advantage of that trust and slowly increase token:bitcoin ratio.



ITS A SCAM!

Simple as that!

[michaelb87]

Answer to your initial question. There should NOT

[odolvlobo]

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

FRB doesn't have to involve tokens or certificates. In simplest form with a single bank, it works like this (with a 10% reserve ratio):

Customer A deposits 100 BTC. Total deposits: 100 BTC, with 90 available for loans
Bank loans 90 BTC to customer B. Customer B deposits 90 BTC. Total deposits: 190 BTC, with 81 available for loans
Bank loans 81 BTC to customer C. Customer C deposits 81 BTC. Total deposits: 271 BTC, with 73 available for loans
Bank loans 73 BTC to customer D. Customer D deposits 73 BTC. Total deposits: 344 BTC, with 66 available for loans
...
Bank loans 1 satoshi to customer X. Customer X deposits 1 satoshi. Total deposits: 1000 BTC, with 0 available for loans

Customers think they have 1000 BTC in the bank, but there is really only 100 BTC. There is no problem until customers want to withdraw more than 100 BTC. Then, the bank will fail unless it can borrow from another bank (or a central bank).

[Cortex7]

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

FRB doesn't have to involve tokens or certificates. In simplest form with a single bank, it works like this (with a 10% reserve ratio):

Customer A deposits 100 BTC. Total deposits: 100 BTC, with 90 available for loans
Bank loans 90 BTC to customer B. Customer B deposits 90 BTC. Total deposits: 190 BTC, with 81 available for loans
Bank loans 81 BTC to customer C. Customer C deposits 81 BTC. Total deposits: 271 BTC, with 73 available for loans
Bank loans 73 BTC to customer D. Customer D deposits 73 BTC. Total deposits: 344 BTC, with 66 available for loans
...
Bank loans 1 satoshi to customer X. Customer X deposits 1 satoshi. Total deposits: 1000 BTC, with 0 available for loans

Customers think they have 1000 BTC in the bank, but there is really only 100 BTC. There is no problem until customers want to withdraw more than 100 BTC. Then, the bank will fail unless it can borrow from another bank (or a central bank).

Yes, that's EXACTLY how it runs.

But it does have to have tokens that abstract the reserve asset, in the Bretton Woods system those tokens were fractional reserve notes representing real gold reserves, in a bitcoin central FRB when you logged in to see your balance, you would be looking at a token value (labelled with btc).

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Make no mistake... the bank does NOT go and buy 90 btc to add to its reserves when the loan is made to customer B.

The bank just creates a new token representing those 90 btc.

You realize this and you agree with me, because your example of how it runs is perfect.

But you may misunderstand what the word "token" means, it is simply an abstraction of something that is real, a make believe thing that represents the existence of a real thing.

Tokens ARE required to run FRB, and what's worse multiple tokens represent the same real thing, hence a "run on the bank" is possible.

FRB is legal counterfeiting of tokens that represent real money. If we were to attempt the same things and get caught we would get hard time in the slammer.

But you are in agreement :

!!! ALERT: FRACTIONAL RESERVE BANKING IS A SCAM !!!

[odolvlobo]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

[Cortex7]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

If that were the case then the banks reserve would fall to 10 BTC after the loan were issued, and it would be a vanilla central bank, AKA a FRB in idle mode running 1:1 reserves.

In FRB, as per your example, the banks 100BTC reserve remains mostly untouched, only a token of account is lent out.

This is where they hide the scam, the token issuance happens at the time the loan is created. Just sufficiently obfuscated enough to bamboozle many folk.

In FRB as you know, with a 10:1 ratio then the bank is fucked if >10% of account holders want to withdraw their asset holdings. When they withdraw they are swapping their tokens for real assets. >10% try and swap at once and the bank is revealed to be a giant scam just like the Pirate40 fiasco. In reality it will be fucked if >~7% try and withdraw because the bank managers already spent coins on ho's and shit.

The balance you see in your bank account is a token value, divide it by 10, that's how much "real" cash the bank is holding for us all. And that cash nowadays is fiat money, that's shittiness to the power of 2!

[ytr8]

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

[/quote]

the thing that Collapse of Mt. Gox has great implications on the Bitcoin world,not only  a bad thing,but also a positive thing,It told us the importance of  safety  about BITCOIN.

[BTCmoons]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

[Cortex7]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

I like that you wrote "should"... you know the score deep down

The account balance you see in your bank account IS a token amount, it isn't real money yet, because 90% of that money exists in the form of unpaid debts, most of this 90% new money does not even exist as deposits in said bank, most account holders have it out in the real world paying for real stuff.

If everyone at Bank_X logs into their account and queries their "available balance" then that value presented on screen IS a token, because it's NOT available to everyone viewing the balance, this is a fact.

As an example: If every user of Bank_X wanted to withdraw at the same time then they many would realize that the number representing their bank balance was a token, representing money that may (or may not) be deposited into the bank in the future.

If only ~10% tried to withdraw at once then the remaining ~90% would have to wait until the future loan repayments hopefully trickled in.

Of course in reality all banks club together to cover each others asses to prevent a "run on the bank".

The recent spate of banking bailouts have proven just how brittle and fragile some FRB banks are becoming, even the buddy system mentioned above failed. It needed government to step in and order the printing of new money at the expense of every holder of said money. If you held said money at the time or expect it as a wage in the future then YOU paid for the fuck up!

If you can climb a ladder faster than the platform to which it is attached is falling then you will appear to make headway, but the final result is inevitable. A money and banking system with no fixed base is exactly this, the foundation for the dollar was destroyed in 1971, history has shown that EVERY money system that goes fiat ALWAYS fails. We are witnessing the end times here, most of the liabilities are being pushed into the future, into the derivatives market.

The final crash will be blamed on some "natural" disaster, but remember it was planned all along, bankers aren't stupid or incompetent, they KNOW their game make no mistake, been playing it for MANY generations.

P.S. don't worry, it's not the end of the world, it's happened many times before.

[Cortex7]

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

the thing that Collapse of Mt. Gox has great implications on the Bitcoin world,not only  a bad thing,but also a positive thing,It told us the importance of  safety  about BITCOIN.

I agree, and also the good ship Bitcoin has sailed through a severe storm, if it can make it through that then it can make it through anything!

[jsgayo]

Anyway, I do not like Bitcoin Central Bank.This is the paradox.

[santaClause]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

I like that you wrote "should"... you know the score deep down

The account balance you see in your bank account IS a token amount, it isn't real money yet, because 90% of that money exists in the form of unpaid debts, most of this 90% new money does not even exist as deposits in said bank, most account holders have it out in the real world paying for real stuff.

If everyone at Bank_X logs into their account and queries their "available balance" then that value presented on screen IS a token, because it's NOT available to everyone viewing the balance, this is a fact.

As an example: If every user of Bank_X wanted to withdraw at the same time then they many would realize that the number representing their bank balance was a token, representing money that may (or may not) be deposited into the bank in the future.

If only ~10% tried to withdraw at once then the remaining ~90% would have to wait until the future loan repayments hopefully trickled in.

Of course in reality all banks club together to cover each others asses to prevent a "run on the bank".

The recent spate of banking bailouts have proven just how brittle and fragile some FRB banks are becoming, even the buddy system mentioned above failed. It needed government to step in and order the printing of new money at the expense of every holder of said money. If you held said money at the time or expect it as a wage in the future then YOU paid for the fuck up!

If you can climb a ladder faster than the platform to which it is attached is falling then you will appear to make headway, but the final result is inevitable. A money and banking system with no fixed base is exactly this, the foundation for the dollar was destroyed in 1971, history has shown that EVERY money system that goes fiat ALWAYS fails. We are witnessing the end times here, most of the liabilities are being pushed into the future, into the derivatives market.

The final crash will be blamed on some "natural" disaster, but remember it was planned all along, bankers aren't stupid or incompetent, they KNOW their game make no mistake, been playing it for MANY generations.

P.S. don't worry, it's not the end of the world, it's happened many times before.

The money does exist in the form of an asset (accounts receivable - loans). If the bank was prudent in underwriting their loans and took on an appropriate amount of risk then the NPV of the assets held in addition to cash will be positive (meaning the value of the loan is more then the amount lent - meaning if the bank had to sell the loan they would realize a profit).

The reason that banks are able to lend out ~90% of their deposits (they actually lend out much less today due to lack of demand for quality loans) is because depositors do not need to spend their money at any given time.

[Cortex7]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

I like that you wrote "should"... you know the score deep down

The account balance you see in your bank account IS a token amount, it isn't real money yet, because 90% of that money exists in the form of unpaid debts, most of this 90% new money does not even exist as deposits in said bank, most account holders have it out in the real world paying for real stuff.

If everyone at Bank_X logs into their account and queries their "available balance" then that value presented on screen IS a token, because it's NOT available to everyone viewing the balance, this is a fact.

As an example: If every user of Bank_X wanted to withdraw at the same time then they many would realize that the number representing their bank balance was a token, representing money that may (or may not) be deposited into the bank in the future.

If only ~10% tried to withdraw at once then the remaining ~90% would have to wait until the future loan repayments hopefully trickled in.

Of course in reality all banks club together to cover each others asses to prevent a "run on the bank".

The recent spate of banking bailouts have proven just how brittle and fragile some FRB banks are becoming, even the buddy system mentioned above failed. It needed government to step in and order the printing of new money at the expense of every holder of said money. If you held said money at the time or expect it as a wage in the future then YOU paid for the fuck up!

If you can climb a ladder faster than the platform to which it is attached is falling then you will appear to make headway, but the final result is inevitable. A money and banking system with no fixed base is exactly this, the foundation for the dollar was destroyed in 1971, history has shown that EVERY money system that goes fiat ALWAYS fails. We are witnessing the end times here, most of the liabilities are being pushed into the future, into the derivatives market.

The final crash will be blamed on some "natural" disaster, but remember it was planned all along, bankers aren't stupid or incompetent, they KNOW their game make no mistake, been playing it for MANY generations.

P.S. don't worry, it's not the end of the world, it's happened many times before.

The money does exist in the form of an asset (accounts receivable - loans). If the bank was prudent in underwriting their loans and took on an appropriate amount of risk then the NPV of the assets held in addition to cash will be positive (meaning the value of the loan is more then the amount lent - meaning if the bank had to sell the loan they would realize a profit).

The reason that banks are able to lend out ~90% of their deposits (they actually lend out much less today due to lack of demand for quality loans) is because depositors do not need to spend their money at any given time.

The bold part is a statistical assumption and is correct (for the majority of the time). The probability of it being correct is dropping over time ( are you aware of the recent bank bail-outs? ).

FRB turns that assumption into the fact:

More than 10% of depositors can NOT spend their money at any given time.

The last safety net is government intervention (bail outs) which entails everybody else (holders of fiat) picking up the tab (inflation).

Myself, I don't think a pyramid scheme makes for a fair and sound banking system, but to each their own.

EDIT: Banks use all spare reserves above requirement to play the markets, all money above reserve requirements is tied up.

[Cortex7]

The money does exist in the form of an asset (accounts receivable - loans).

No, you are incorrect, when a bank issues a loan that money does NOT exist until it has been repaid. The debtor will have to sell his labor or other assets to raise the money for repayment. There is no guarantee that it will be repaid, it is a gamble.

What does exist is an abstract token of the real money, this is the loan itself.

I realise that the interest on the loan should cover associated risks when things are running well, but when things don't run so well you can end up with an avalanche of failure and a hell of a lot of bag holders, history has shown this to be so.

over $16 trillion was allocated to corporations and banks internationally, purportedly for “financial assistance” during and after the 2008 fiscal crisis.

Talk of QE Tapering, means next time the safety net may not be quite as resilient, if present at all.

[magic ice]

If there is a bitcoin central bank, then there should be a Bitcoin Central Bank governing body, which I dont like.

[Cortex7]

If there is a bitcoin central bank, then there should be a Bitcoin Central Bank governing body, which I dont like.

Exactly, you can't have one without the other.

Bitcoin central bank is a terrible idea.

Bitcoin already is the perfect bank, distributed amongst the people.

If one person wants to lend to another at interest that's cool, but we don't need a central bank.